All Forum Posts by: Kurt Gardner

I have purchased mostly SFH and rented. I have flipped one, sold one that I had rented for 5 years, and I've also bought a duplex. Now I'm looking into purchasing a much larger property in a college town.

I would love to hear some advice from the experts about this type of venture.  Thank you in advance for thoughts.

1) Assuming the valuation on purchase price is the same, should I look for 1BR units or 2-3BR units?  Is there any greater security in renting to a group of roommates versus a single person?

2) Would I offer a rental term that coincides with the typical school year or traditional year to year?  Would I look for the same total either way (i.e., if I go 9 months would that total to the same amount of rent for 12 months, just more per month)?

3) I manage my properties myself, but this would likely be at least a couple hours away.  Would it be silly to try this without a rental management company?  If I go with a company, what kind of percentage should I reasonably expect to have to pay?

4) I use a third party screening service to run credit/criminal/background checks on all my potential tenants, and they provide a recommend/do not recommend status on each applicant.  I can see the college student would have very limited or even no actionable information in these categories.  Do I just use a parent as co-signer and screen them instead?

* if there is a really good article already established for this, thank you kindly for pointing me there, too.

Kurt

@Michael Perry

Due diligence. Always the right thing in REI.

I always envisioned a TK opportunity like buying something in a plastic package right off the shelf.  Immediately usable, fresh, and ready for consumption, but more expensive than if you made it at home.

Because I could find enough deals around me that fit my criteria (50% rule), I never really considered the option, but I have been intrigued particularly for out of state purchases.

It still seems a little daunting, but your questions have beat the bushes and delivered some really intelligent, encouraging responses.  Thank you for (ex)posing your naiveté for us to see and starting this discussion.

(Hijacking slightly) Like all REI, we shoot for a "general range of numbers" or ratio. Is there anything like this for %cash flow or %equity regarding TK? I know it's very regionally specific, but there must be good numbers, bad numbers and then realistic numbers. And because this is no longer 2012, what would be a comparison between now and then?

yes.

@Nate Denning

see this thread I started about 4 months ago...

https://www.biggerpockets.com/forums/51/topics/378450-will-you-do-your-own-taxes-this-year

I just updated my result.  Because you are a business owner (albeit only one rental at the moment), I'd advise you treat it as such and use a professional preparer.  So much of what REIs struggle with is not the physical nature of the business, but the potential financial pitfalls, and tax auditing is certainly one.  Find somebody you trust.  Pay the money.  If they don't work out, find somebody else.  I've been through four insurance companies for my properties and three tax advisors.  Not all bad situations; some bad, but mostly, just not right for what I needed.

I think in the end, you'll know it was the right decision and you'll feel more confident.  Besides, when you get "bigger," it's nice to walk into a bank/credit union with two previous years of professionally prepared tax returns to slap on Scrooge McDuck's mahogany table to get your loans approved instead of some cheap photocopied big box store tax software and legal pad scribbles.

Blessings.

Update 3/1/2017

After all the discussion and wise counsel from you, it was decided to try a new professional preparer for my taxes this year.

I went to another investor friend (a whale as I am still a guppy) for a suggestion and he provided me with his preparer.

My wife and I interviewed him and agreed to give him a shot.  He was very forthright and helpful.  Made some very good suggestions (safe harbor is a deduction he explained that was extremely helpful).  His attention and willingness to listen to me prattle on was nothing short of saintly.

All told we got our package back yesterday and for just under $800, I got a wonderful return and I will be using him from now on.  Side note, if I had come up with the numbers at which he arrived, I would have felt I did something wrong and would be totally paranoid to submit for fear of audit.  I'm beyond pleased and saved from so much hassle and headache.

Thank you all for the great discussion and I'll cast my vote for, "It pays to have a professional do them, not only for the time you would invest doing them yourself, but also for the peace of mind knowing they are done by a professional and you have a support in any questionable audit in the future" column.

Blessings.

I rehab and work with many elements of the home building/rebuilding community in the area.  I have had good, terrible, and fantastic support.  It is a bit of a lottery if it is your first time.

You MUST talk to many people to try and get a consensus on who will be best for you.  The above suggestion about a good GC is paramount, and THE number one thing that will keep you from losing your mind and money. 

It is very possible, and your desire to go this route is admirable.  Blessings on your adventure and I will be happy to make a suggestion for you for a consultant/contractor if you'd like.

@Ronald Perich - thank you.  I think my final question on that would be, if they DON'T pay, would I be liable for the taxes with the exemption, or without?  Because if it's with the exemption, then I'm pretty golden, because I don't think they wouldn't change the exemption during the year (ie prorate it).  If I would be accountable for the taxes without the exemption if they didn't pay, then I'm sure the effort is not worth the risk.

@John Thedford and @Jeff B.

Ok, I spoke to my county assessor and they say if I can get the tenant to sign an agreement to pay the taxes, there is a "general homestead exemtion for leasehold properties" option.

I cannot build it into my rental agreement so that I identify that they pay $xx for the rent and $xx of that is for taxes.  They actually have to sign up with the assessor's office and agree to pay those taxes.  I can reduce my rental charges for them in that amount if they'd agree to it, but if they fail to pay, then my property goes up for a tax sale unless I pay it, and they could just walk away, so...

I haven't put numbers on this, but it sounds very difficult and perhaps not worth the effort...

if anybody else has tried this, I'm curious how it worked out for you?

@Adam Jeske That sounds a little tight for my tastes. I work in a market where I can purchase deals much closer to 50-70% ARV. My first duplex was $92k with approx. $30k in reno (for both sides - new kitchens, bath, doors, carpet, paint, etc...it has appraised at $145k. I am getting $950 rent on one, and will be putting up the other in about a month, hoping for the same (looking for a cash flow of $575-600/month with both occupied).

I agree, you might have an equity winner there, but as your first deal, and because it's such a dog for cash flow, it might hinder your ability to move on the next good opportunity. 

Best advice I've always heard is be patient to make sure the deal fits the numbers - don't fudge or get jumpy and be too optimistic with what you THINK will make the numbers work...they MUST work on their own.  If you are patient to find a property that works that way, and then are aggressive and move quickly to acquire it, you will find stable growth and success in your business.

Blessings and keep us updated on your story!

I searched the site for some basic information on this, and didn't see much in the specific area of exemptions, and that might be because there really isn't any (sad face).

I do know the lot of you are much more intelligent than any search engine, so I put this out there for your wise counsel:

"Are there any exemptions or other tax credits that I can file with the county that would reduce my 'Net Taxable Value' on my investment properties (properties that I do not live in, have a mortgage for, and rent)?"

I appeal all my valuations with appraisals and or the HUD statement when I buy, and that usually helps for a year or so, then the county likes to get their money back as soon as possible (and typically, they do by jacking up the assessed value immediately).

I am looking for any options to keep my tax bill as low as possible and all help is appreciated.

Thank you, always!